699 F.

2d 503

Robert C. HERZFELD, Petitioner,

v.
The UNITED STATES DISTRICT COURT For the
DISTRICT OF
COLORADO and the Honorable Fred M. Winner,
Respondents.
UNITED STATES of America, Plaintiff,
v.
Trenton H. PARKER, International Mining Exchange, Inc.,
Defendants,
Elizabeth Eken, as representative of the class of investors
defrauded by Trenton H. Parker and International
Mining Exchange, Inc., Appellant,
William C. Lam, Receiver-Appellee.
Robert C. HERZFELD, Plaintiff-Appellant,
v.
Trenton H. PARKER, Adrian Doyle, James T. Wilson, Stephen
Spangler, Robert E. Norwood and International
Mining Exchange, a Colorado corporation,
Defendants- Appellees.
Robert F. BROWN, Robert A. Brandt and RFB Petroleum,
Inc., a
Texas corporation, Plaintiffs-Appellants,
v.
Trenton H. PARKER, the International Mining Exchange, Inc.,
a Colorado corporation, R. Steven Spangler, James
T. Wilson, Adrian Doyle and Robert
Norwood, Defendants-Appellees.
Elizabeth EKEN and William Johnson, Plaintiffs-Appellants,
v.
INTERNATIONAL MINING EXCHANGE, INC., et al.,
Defendants-Appellees.
Nos. 82-1948, 82-1994, 82-2044, 82-2045 and 82-2046.

United States Court of Appeals,

Tenth Circuit.
Jan. 31, 1983.
Rehearing Denied March 7, 1983.

Patrick C. English of Dines, English & O'Kane, Clifton, N.J. (Walter L.

Gerash of Gerash & Robinson, P.C., Denver, Colo., with him on brief), for
plaintiff-appellant Elizabeth Eken.
Richard B. Podoll of Podoll & Podoll, P.C., Denver, Colo., for plaintiffappellant Robert C. Herzfeld.
William A. Wilson of William Andrew Wilson, P.C., Denver, Colo., for
plaintiffs-appellants Robert F. Brown and RFB Petroleum, Inc.
Richard N. Stuckey of Keene, Munsinger & Stuckey, Denver, Colo., for
receiver-appellee William C. Lam.
Robert T. McAllister, Asst. U.S. Atty., Denver, Colo. (Robert N. Miller,
U.S. Atty. and Gerald J. Rafferty, Asst. U.S. Atty., Denver, Colo., with
him on brief), for plaintiff United States of America.
Before SETH, Chief Judge, and BARRETT and DOYLE, Circuit Judges.
SETH, Chief Judge.

In this case we consider consolidated appeals all of which arise from a

somewhat involved set of facts. We set out only the facts necessary to explain
our disposition of the matter.

Trenton H. Parker was indicted in Colorado for mail fraud in connection with
an investment plan. During his trial he pled guilty in the United States District
Court for Colorado, 543 F.Supp. 1019, under a plea agreement pursuant to
which he transferred to that court in Colorado approximately six million dollars
which had been on deposit in a bank in the Bahamas. This money was part of
the proceeds of the "Gold Tax Shelter Investment Program" which was the
particular scheme which gave rise to the criminal charges. Pursuant to the plea
agreement and the sentencing, the United States District Judge in Colorado
ordered that the money be used for restitution to those investors defrauded by
the Gold Tax scheme. The judge further ordered that the restitution be effected

through a receivership and appointed a receiver. This appointment of a receiver

during the course of the criminal proceedings and with no pending civil action
is contested in each of the instant appeals.
3

Prior to the criminal proceedings several private investors, among them

appellant Herzfeld, filed suits in the United States District Court for Colorado
to recover monies lost in some of Mr. Parker's investment plans. After a lengthy
discovery process, summary judgment for these plaintiffs was therein granted
for about four million dollars. By far the greatest part of that figure represented
attorney's fees and punitive damages. Shortly thereafter (December 23, 1981) a
class action was brought in New Jersey on behalf of investors defrauded in the
"Gold Tax Shelter Investment Program." The United States District Judge
certified the class on January 29, 1982 and issued a restraining order against
Barclay's Bank in the Bahamas and others. There were deposits of Mr. Parker
in the bank which were proceeds of the Gold Tax scheme.

The Grand Cayman bank had entered no appearance in the class action pending
in New Jersey. The government argues that any conformance by the bank to the
restraining order would have been a purely voluntary matter. Thus it points to
an affidavit by an Assistant United States Attorney which recites that the bank
manager and its counsel advised him, apparently after the fact, that the bank
would not honor a restraining order and would instead have transferred the
funds on the request of Mr. Parker. Also, the only action taken by the bank was
taken after the depositor, Mr. Parker, requested that the funds be transferred to
Colorado pursuant to the plea agreement and the funds were so immediately
transferred.

We do not decide whether the Grand Cayman bank was or was not bound by
the orders of the New Jersey court. The court modified its order about the same
time to permit the transfer of funds and the transfer was made in any event. Mr.
Parker entered his plea on February 9, 1982 and he directed the bank to make
the transfer. As mentioned, the funds were so transferred by the Grand Cayman
bank to Colorado, and then into the registry of the court and to the receiver.
The receiver was later directed by the instructions of the court given at the
sentencing of Trenton Parker. The receiver invested the funds pending their
distribution and set about to identify the defrauded investors.

Before any disbursement, the claims here considered were asserted against the
funds. The plaintiffs in the Colorado civil actions attempted garnishment of the
money in the receivership as did the class action plaintiffs. These parties argued
that the receivership was void and that the funds were subject to garnishment.
The class certified in New Jersey also moved to have the money transferred

into a receivership there. In support of this motion the class also argued that the
Colorado receivership was void.
7

The claims by the parties in the civil suits came before a judge other than the
one before whom the criminal action had been heard and he ruled that the civil
plaintiffs could not prevail unless the receivership established in the criminal
case was found to be void. He refused to invalidate the receivership, he quashed
the writs of garnishment, and denied the motion to transfer the funds to New
Jersey. The judge recognized that the validity of the appointment of a receiver
in a criminal case was the controlling question of law in the disposition of the
claims of the civil plaintiffs, and was a matter about which there could be
substantial difference of opinion. He formally made these findings for review
under 28 U.S.C. Sec. 1292.

In addition to this, the Colorado plaintiffs have petitioned this court for a writ
of prohibition directed against the receivership. Finally, there was an appeal
pending from the denial of a motion filed by the New Jersey class plaintiffs in
the Colorado criminal case requesting the transfer of the funds to New Jersey.
These cases are consolidated to consider the question whether the receivership
established in the criminal case is valid.

The district court's power to provide for restitution is created by the statutes
relating to probation and suspension of sentences. Thus 18 U.S.C. Sec. 3651
provides in part that:

"While on probation and among the conditions thereof, the defendant-10

....
11
12 be required to make restitution or reparation to aggrieved parties for actual
"May
damages or loss caused by the offense for which conviction was had; and ...."
13

The statute does not delineate what, if any, special powers are granted to the
sentencing court to create means by which restitution might be accomplished.
This restitution is part of the criminal and sentencing procedure under the
statute.

14

Rule 57(b) of the Federal Rules of Criminal Procedure gives courts latitude in
fashioning special procedures. This section reads:

15 no procedure is specifically prescribed by rule, the court may proceed in any

"If
lawful manner not inconsistent with these rules or with any applicable statute."

16

There is no convincing claim that any rule or statute makes the order in
question "unlawful" nor that it is necessarily inconsistent with statutory law.
Instead the parties in the civil actions urge that there is an absence of express
authority and thus of jurisdiction to create the receivership.

17

The appellants urge that the legislative history as well as some judicial
interpretation of Rule 57(b) suggests that it was directed to alleviate possible
conflicts between state and federal procedures, and that it cannot be used to
justify such an unusual practice as is here in question. 8B Moore's Federal
Practice p 57.03 at 57-4 (2d ed.1965). However, legal and practical
considerations militate against such a narrow interpretation.

18

Congress' enactment of the provision providing for restitution must contemplate

sufficient flexibility and authority in criminal proceedings to accomplish
restitution in a great variety of circumstances. In Blue Cross Ass'n v. Harris,
622 F.2d 972, at 978, the Eighth Circuit observed:

19 is a commonplace of statutory construction that a legislative grant of a power

"It
carries with it the right to use the means and instrumentalities necessary to the
beneficial exercise of that power."
20

See also Daly v. Stratton, 326 F.2d 340 (7th Cir.). Thus, insofar as a
receivership was necessary to accomplish restitution in these circumstances the
authority to create the receivership should be considered as implicit in the
power to order restitution.

21

As to changes taking place after defendant's trial, it is significant that by Public

Law 97-291 restitution may now be ordered whether or not the defendant is
placed on probation, and it has become a much more important part of
sentencing. Reasons must now be expressed by the sentencing court if it does
not order restitution in full. For purposes of this appeal it is important that these
changes provide for much broader and flexible orders for restitution and new
ways to enforce such orders entered in the criminal proceedings. But again
there is no machinery provided or required to accomplish the restitution itself.
This matter is still left to the discretion of the sentencing court, and in our view
this includes the receivership here in issue.

22

The considerations involving practical concerns have also been recognized.

Courts are making increasing use of special probation orders suitable for
particular cases. We have approved such devices. United States v. Lawson, 670
F.2d 923 (10th Cir.). The use of special provisions demonstrates the need for

flexibility in orders which attempt to make effective use of the authority to

fashion useful probation. The Ninth Circuit in United States v. Pierce, 561 F.2d
735, stated that the "practical needs of the probation system" are a
consideration in determining the validity of special conditions on probation. See
also United States v. Consuelo-Gonzales, 521 F.2d 259 (9th Cir.). Thus even if
the receivership cannot be said to be a necessity but a practical and effective
device to assist in effecting the goals of the criminal system, it should be
approved.
23

In a scheme like this one, where substantial sums of money are involved, the
appointment of a receiver to invest and distribute the money is both necessary
and beneficial to accomplish restitution. The functions to be performed are
typically those of a receiver--only the setting is unusual.

24

The parties have cited three cases in the United States Courts of Appeal which
involved receiverships in the context of a criminal case. These are United States
v. Roberts, 619 F.2d 1 (7th Cir.); United States v. Boswell, 605 F.2d 171 (5th
Cir.); Patterson v. Stovall, 528 F.2d 108 (7th Cir.). In all of these cases,
however, the receiverships were initially established through civil actions.

25

The usual practice of directing a probation officer to accomplish restitution is

desirable where there are few claimants and where the amount of money is not
great. However, where as here the interim investment of the money is
necessary, where the identification of the persons entitled to restitution may be
difficult, where the number of claimants is large and a pro rata distribution of a
large fund is necessary, a person with more specialized training is required. The
expertise of the probation officers is in other fields.

26

The Colorado receiver is under the control and direction of the court appointing
him as are the receivership proceedings to accomplish restitution. There is no
suggestion that there may be a delegation of authority to private litigants nor is
restitution part of litigation among private parties. Thus there would seem to be
a serious question whether the district court in Colorado could delegate
restitution to be accomplished in such proceedings nor even by another receiver
appointed in connection therewith.

27

A criminal proceeding in a United States district court is not in a separate

compartment with the court exercising only a limited portion of its authority as
the appellants argue. The federal courts obviously are of limited jurisdiction but
the extent of the authority of the district courts in these circumstances is not
limited or governed by whether the proceeding is criminal or civil. We find

nothing in the decisions nor in statutory law which prevents the creation of the
receivership in the criminal action here under consideration.
28

There is an important additional factor in the case which also leads to the
conclusion we reach. This is the fact that the return of the money to the United
States and restitution to the investors was part of the plea agreement between
the United States and the defendant. It was reached during the course of
defendant's trial. The defendant performed his part of the agreement in
instructing the Grand Cayman bank to remit the funds to the United States. This
was the only effective action to bring the funds into the registry of the court to
permit restitution. It remains for this restitution to proceed to conclusion, for
the plea agreement to be executed on the Government's side, and for the
condition of probation to be met.

29

Thus the plea agreement, the return of the funds to the United States, the
sentencing and the restitution are all interrelated parts of the proceedings in
Colorado which started with the indictment of the defendant in June of 1981.
The restitution is the unexecuted part of this bundle and remains part of the
sentencing. It is important that the Colorado proceedings thus continue on the
track they are now on, and that nothing be done to jeopardize the restitution
underway pursuant to the agreed transfer of funds and the plea agreement
generally.

30

The New Jersey judge, Judge Stern, in his modification of the injunction
indicated that the important thing was to have the transfer of funds
accomplished. The fact that the funds would become locked into the Colorado
proceedings may not then have been contemplated, but in any event, they
became available to the investors which was the end sought in the class action.
Judge Stern thus took all the action in the New Jersey suit that was possible to
protect the investors and to prevent the defendant from dissipating the funds in
the Grand Cayman bank. This, together with the action of the prosecutors in the
plea bargaining, has made the money available for return to the investors. It
makes no difference at this point what the Grand Cayman bank would or would
not have done had the defendant not taken the action he did as part of the plea
agreement as the funds were remitted, and they are under the control of the
Colorado court for the eventual return to investors. Both the New Jersey court
and the Colorado court are trying to have as much money as possible returned
to the investors. There appears to be no reason why they cannot proceed on
parallel paths made necessary by the unusual circumstances and the origin of
each action.
Each of the groups of parties in the civil proceedings urge that they did the

31

31

most to bring the defendant to justice, to determine where the invested funds
had been deposited, and were otherwise diligent in pursuing their claims.
However, we cannot decide these appeals on the basis of which of the parties is
entitled to the most equitable consideration. Again we must hold that the trial,
the plea bargain, the return of funds to the United States, the receivership and
the probation have all been interdependent elements of the Colorado criminal
proceedings. It is one package for all practical purposes, and should be there
concluded as such as quickly and efficiently as possible.

32

We hold that the Colorado receivership is valid in all respects and the funds
therein held are in no way subject to garnishment.

33

The application for a writ of prohibition is denied in Case 82-1948.

34

In 82-1944 we affirm the denial of motions to transfer the receivership funds to

the New Jersey class action or to a receivership there created and otherwise
affirm the trial court.

35

In 82-2044 and 82-2045 we affirm the order of the trial court quashing the
writs of garnishment and the denial of relief to the movants.

36

In 82-2046 we also affirm the order of the trial judge refusing to transfer funds
to New Jersey and otherwise affirm the orders of the trial judge.